Assessee qualifies as developer under Section 80IA(4), entitled to deduction; written back amounts added as business income

Assistant Commissioner of Income-tax (CC) – 45 Versus Pratibha Industries Ltd. And Vice-Versa

Assistant Commissioner of Income-tax (CC) – 45 Versus Pratibha Industries Ltd. And Vice-Versa - [2013] 23 ITR 766 Issues Involved:

1. Legality and applicability of section 153A of the Income Tax Act, 1961.
2. Eligibility for deduction under section 80IA of the Income Tax Act, 1961.
3. Allocation of written-back liabilities for deduction under section 80IA.

Detailed Analysis:

1. Legality and Applicability of Section 153A:

The primary issue raised by the assessee in the Cross Objections (COs) was the legality and applicability of section 153A of the Income Tax Act, 1961. The assessee contended that there was no incriminating material found during the search that could justify the invocation of section 153A. The AR argued that assessments for assessment years 2000-01 to 2003-04 had reached finality under section 143(1) and that no proceedings were pending for these years. The AR referred to various judicial precedents and CBDT Circular No. 7, dated 05.09.2003, to support the argument that section 153A could only be invoked in cases where proceedings were pending and that no new assessments could be made without incriminating material.

The Tribunal, after considering the submissions, held that section 153A is automatically triggered upon the initiation of a search under section 132, and the AO is bound to issue notices for the preceding six years. The Tribunal noted that the AO has the jurisdiction to assess or reassess the total income, including undisclosed income, based on any incriminating material found during the search. However, in cases where no incriminating material is found and the assessments have reached finality, the AO should restrict the assessment to the income already determined.

The Tribunal concluded that the AO was correct in issuing notices under section 153A and that the proceedings were valid. Therefore, the COs filed by the assessee challenging the legality of the assessments under section 153A were dismissed.

2. Eligibility for Deduction under Section 80IA:

The department's appeals challenged the CIT(A)'s decision to delete the disallowance of deduction under section 80IA on the grounds that the assessee was merely a contractor and not a developer of infrastructure projects. The AO had disallowed the deduction, arguing that the assessee did not fulfill all the conditions specified in section 80IA(4), particularly the requirement to operate and maintain the infrastructure facility.

The CIT(A) allowed the deduction, relying on the decision of the Mumbai ITAT in Patel Engineering Ltd. v. DCIT, which held that a developer of infrastructure facilities is entitled to the deduction under section 80IA, even if the developer does not operate and maintain the facility. The CIT(A) observed that the assessee was engaged in the development of infrastructure projects and had made significant investments and assumed various risks associated with the projects.

The Tribunal upheld the CIT(A)'s decision, noting that the term 'developer' is not contradictory to the term 'contractor' and that the assessee met the conditions specified in section 80IA(4). The Tribunal referred to various judicial precedents, including the decision of the Bombay High Court in CIT v. ABG Heavy Industries Ltd., which supported the view that a developer who only develops infrastructure facilities is eligible for the deduction under section 80IA. The Tribunal dismissed the department's appeals on this issue.

3. Allocation of Written-Back Liabilities for Deduction under Section 80IA:

For assessment year 2005-06, the department's appeal included a ground challenging the CIT(A)'s decision to allow the deduction under section 80IA on the amount of liabilities written back under section 41(1). The AO had rejected the assessee's claim, arguing that the assessee failed to prove that the written-back liabilities pertained to projects eligible for deduction under section 80IA.

The CIT(A) accepted the assessee's method of bifurcating the written-back liabilities based on the proportion of turnover from 80IA and non-80IA projects. The Tribunal upheld the CIT(A)'s decision, noting that the liabilities written back were related to the business and should be added to the income eligible for deduction under section 80IA. The Tribunal found the allocation method reasonable and dismissed the department's appeal on this ground.

Conclusion:

The Tribunal dismissed the appeals filed by the department and the Cross Objections filed by the assessee for assessment years 2000-01 to 2004-05. The Tribunal also dismissed the department's appeal for assessment year 2005-06, upholding the CIT(A)'s decisions on all issues.